Schools clearing health care hurdles
Some school employees face getting the short end of the stick as district leaders work to comply with new Affordable Care Act requirements while juggling tight budgets.
Many education stakeholders, including teachers unions, supported the ACA and ensure all students have access to health care. Research shows health is positively linked to academic performance, attendance and graduation rates. The ACA also provides grants for school-based health centers, community-school health partnerships, and services for pregnant and parenting adolescents.
But many superintendents say the cost burden is being placed on districts that are already cash-strapped. Some superintendents are reducing teacher health benefits and slashing the hours of part-time staff to avoid tax penalties and the high costs of insuring all employees. And such cuts could indirectly hurt the students.
In 2012, 11 percent of school business officers said that the impact of the ACA was one of the issues that most worried them. In 2013, that number jumped to 54 percent, according to an ASBO survey.
“I think the intent of the act is a good one—to make sure everybody has health care. But for businesses such as ours that have over 50 employees, it’s cost inefficient,” says Vincent DiLeo, superintendent of Central Cambria Public Schools in Pennsylvania. “We’re dealing with so many unfunded mandates, like special education needs and rising pension costs, there’s not enough money to pull from. The intent is good, but it’s being done without considering the effect it will have on public school systems.”
Now, schools are beginning to plan for ACA provisions—namely, the employer mandate and the Cadillac tax—that will impact district workload and budgets. Administrators are making difficult decisions to balance employee benefits with financial needs.
Cutting part-time hours
One of the most controversial elements of the ACA is the employer mandate, also known as the play-or-pay mandate or Free Rider Penalty. Under this rule, employers of more than 50 people must offer full-time employees and their dependents health insurance that is no more than 10 percent of income and covers 60 percent of healthcare costs. If districts don’t meet that requirement and employees gain coverage through state or federal exchanges, then districts must pay a fine of $2,000 per employee.
In 2013, the Internal Revenue Service issued proposed regulations on the interpretation of the law, and defined “full-time” as 30 hours or more per week—instead of the traditional 40 hours—to give more people access to healthcare. Though they are only proposed regulations, they will remain in effect unless new rules are determined by the IRS.
President Obama delayed enforcement of the employer mandate for businesses with 50 to 99 full-time employees to 2016. For those with over 100 employees, at least 70 percent must be covered in 2015, followed by 99 percent in 2016.
Self-funded vs. fully insured plans
Districts with over 1,000 employees often self-insure rather than purchase fully-insured plans, leveraging larger budgets to manage spikes in claims. Roughly 65 percent of all districts self-insure, says Cain Hayes, head of government sector and labor business at Aetna.
The onset of the Affordable Care Act may push more to self-insure to avoid the act’s new Health Insurance Providers Fee that could increase premiums on fully-insured plans by 2 to 4 percent.
Roughly two-thirds of Aetna’s school district clients self-insure. The main factor in the decision is the number of employees covered by the district, Hayes says. Districts with fewer than 1,000 employees tend to fully insure to avoid month-to-month variability in claim costs.
“Some districts like the predictability of a fully-insured plan, and are not willing to assume the risk of high-dollar claims,” Hayes says.
Larger self-insured districts tend to reserve funds to pay claims. They don’t pay a set premium each month. Instead, they pay employees’ claims directly. Many of these districts also purchase stop-loss insurance policies to minimize the risk of financial loss from unanticipated large medical bills.
For example, a district may purchase stop-loss insurance to protect against claims that are over $1 million, and the health insurance carrier pays any claim above that amount.
Pasco County Schools in Florida, a district of 10,000 employees, has been self-insured with Blue Cross Blue Shield since 2009. The district was fully insured for many years, but insurance carriers were increasing rates between 9 and 12 percent, says Kevin Shibley, executive director for administration at the District School Board of Pasco County.
Administrators determined that they could save those extra costs if they took on the risk of self-insuring, he says. “We have a long history of being stable, so we made the decision to go self-insured,” Shibley adds.
Since then, the district has not had an annual increase to its insurance plan exceeding 5 percent, Shibley says. It also worked with Crowne Consulting Group to open on-site employee health care centers, and saved $14 million over three years as a result.
School leaders have been scrambling to determine budgets under this new definition of full-time. Some 90 percent of districts are tracking hours or will be soon to determine which employees are over 30 hours per week, according to a 2013 survey from Frontline Technologies, a K12 software company. And 47 percent of districts have reduced or plan to reduce part-time hours to under 30 hours per week, the survey found.
At Vigo County School Corporation in Terre Haute, Ind., bus drivers, cafeteria staff, student aides and other part-time employees used to work up to 39 hours per week. Now, the district has cut their hours to 29 per week to avoid fines.
The district of 16,000 students and 2,000 employees has an annual budget of $150 million. Insuring all part-time staffers would cost at least an additional $6 million, which the district does not have, says Superintendent Danny Tanoos. “It’s taking money out of the pockets of some of the hardest working employees who need the money the most,” Tanoos says.
And cutting part-time hours and rotating staff members is detrimental particularly to special-needs students who thrive under consistency. The district also has changed transportation routes and rotated bus drivers so none work for more than 29 hours a week, he adds.
To ensure the employees who had their hours slashed are still making the same amount of money, the district bumped up the hourly pay, Tanoos says. But new part-time employees will not receive this extra salary. “My advice for administrators is to do all you can to contact your congressmen and representatives, and tell them to get the IRS to change the rule,” Tanoos says. “It’s a 40-hour work-week, very simply.”
Central Cambria schools, a district of 1,700 students and 250 employees, has also cut most part-time staff shifts to under 30 hours per week. Several aides were kept at full-time hours based on their work and experience with high-risk students, and will therefore receive the healthcare benefits, DiLeo says.
But, at the same time, the district had to hire additional part-time help to keep the other part-time workers under 30 hours a week, DiLeo says. “It’s far cheaper than paying for health care,” he says.
Contracting substitute teachers
Some districts are turning to contract employees—who aren’t covered by the insurance mandate—to work shifts that surpass 30 hours a week. At Lee’s Summit R-7 School District in Missouri, substitute teachers who had been hired and paid by the district in the past are this year employed by a temporary employment agency.
The change allows the district of 17,600 students and 2,600 staff to hire substitutes for over 30 hours per week without worrying about health care costs, says Associate Superintendent of Human Resources Jeff Miller.
The district provides full-time benefits for employees working 25 hours per week, Miller says. “Because we are outsourcing substitutes, we do not anticipate a significant number of employees will be eligible for coverage,” Miller says.
Lee’s Summit uses an average of 100 substitutes per day from the employment agency. The district previously paid $338,000 in salary for substitutes per year, some of whom work over 30 hours per week and would qualify for coverage—adding another $355,000 in insurance costs. All totaled, the district would be spending an average of $693,000 per year for substitutes.
Lee’s Summit expects the temporary employment agency, Kelly Educational Staffing, to charge $619,000 for 2014-15, which would save the district $74,000.
Most substitutes who previously worked for the district were able to apply through Kelly and continue to teach in the district, Miller says. Miller advises administrators to educate staff about the ACA requirements and how the district is developing procedures to determine eligibility for employees.
“We have found a great deal of misinformation gets communicated through the rumor mill and creates confusion and mistrust within our employee groups,” Miller says. “We need to strive for the right balance between what the district can afford and what’s best for employees.”
Cadillac tax and collective bargaining
Another provision to impact schools is the act’s 40 percent excise tax on annual insurance benefits that exceed $10,200 for individuals and $27,500 for families. It is commonly known as the “Cadillac” tax because it targets health plans that provide workers with generous benefits paid for mostly by employers.
The tax, which goes into effect in 2018, was designed to slow the rate of growth of healthcare costs and finance the expansion of health coverage, says the journal Health Affairs.
Teachers and other public employees tend to have better health plans than do workers in the private sector. If costs exceed the limits of the provision, districts will have to pay the tax.
The coming tax is leading some districts to renegotiate health plans with teacher’s unions. Newport-Mesa USD in Orange County, Calif., reportedly agreed with its teacher’s union last year to increase out-of-pocket costs and cut the rise in its health care premium from 6 percent to 3 percent to avoid the tax—a cost of up to $2.3 million in 2018.
“We find that a lot of folks, in both unions and district management, have an expectation that this is going to be appealed and they won’t be subject to the Cadillac tax,” says Henry Loubet, chief strategy officer at Keenan, a California-based insurance brokerage and consulting firm. “But we believe it’s real and it’s the law, though it may be modified.”
Districts should be re-negotiating hours of services, eligibility for part-time employees and other elements unique to their collective bargaining agreements to avoid the tax, Loubet says. Parkland School District in Allentown, Pa, a district of 9,200 students and 1,200 staff, finalized a new contract in August that offers a new plan with fewer benefits that is less expensive for the district.
The union will share any Cadillac tax costs with the district. And teachers who choose to pay for more expensive plans will have increased employee contributions that will go to the district to help offset the cost of premiums.
If the district continued with its old plans and premiums, it would face a tax of between $60,000 and $80,000 in 2018. “When economic times are slower and we get a financial mandate, we have to look toward the union to help us pay for these costs,” says Parkland’s Director of Business Administration John Vignone. “They’re a partner, and we have to be working cooperatively to help the district, students and taxpayers.”
If half of all teachers go from the more expensive to less expensive plans, the district will save $500,000 in premiums, Vignone says. “Don’t get overwhelmed by it,” Vignone advises administrators. “Select a few objectives you want to get out of collective bargaining to help deal with the ACA, and you will be more successful getting a contract and financial wins.
“If you wait until 2018 to start fixing your contract, you’re too late,” he adds. “It can be a multiyear plan, but you should start now.” DA
Alison DeNisco is news editor.